Stocks are having a great run right now. Large-cap stocks are going up, small-caps stocks are going up… it really is a bit of a ‘goldilocks’ market.
Of course, stocks could pull back at any time. However, encouragingly, some experts believe the market could keep rising for a while. Wharton professor Jeremy Siegel, for example, believes stocks could keep rising until the US Federal Reserve moves to tighten rates. And he doesn’t believe that’s going to happen in the near term. “Enjoy this ride. It’s going to keep on going… toward the end of the year,” he told CNBC last week.
Here, I’m going to highlight three stocks I like for this bull market. I’d be happy to buy all three for my own portfolio today.
One FTSE 100 stock I believe has the potential to keep climbing in this bull market is alcoholic drinks giant Diageo (LSE: DGE).
My investment case here is pretty simple. As the world reopens in the months ahead, people are likely to catch up with their friends and drink alcohol. As the owner of a wide range of top brands such as Tanqueray and Guinness, Diageo should benefit.
This isn’t just a short-term play, however. In the long run, Diageo looks well-placed to benefit from the ‘premiumisation’ trend. Increasingly, consumers are willing to pay more for higher-quality products.
Of course, if there are Covid-19 setbacks, my investment case may become obsolete. However, with the stock still more than 10% below its all-time highs, I think the long-term risk/reward proposition here is attractive.
Another stock I’d buy for this bull market is US-listed Starbucks (NASDAQ: SBUX). This is a stock star portfolio manager Terry Smith bought for his fund last year.
I think this company should do well as lockdowns are eased globally. People are going to want to catch up with their friends so Starbucks should benefit. “We are here for that great human reconnection,” CEO Kevin Johnson said recently. “Starbucks was built for this moment.”
However, Starbucks isn’t a cheap stock. Currently, it sports a forward-looking P/E ratio of about 40. This adds risk to the investment case. But I’m comfortable with the valuation as the company has historically been very profitable.
Smith & Nephew
Finally, I like Smith & Nephew (LSE: SN). This is a leading medical technology company specialising in joint replacements.
Smith & Nephew has had a tough year. That’s because during Covid-19 many elective medical procedures were postponed. However, I see this as a short-term setback. As vaccines are rolled out globally, elective procedures should pick up, boosting Smith & Nephew’s sales. This year, analysts expect sales to rise about 16%.
Looking further out, there’s an attractive growth story here. By 2030, it’s expected there’ll be 1.4bn people across the world aged 60 and over (versus less than 1bn now). This demographic shift should drive demand for joint replacements.
This stock could be volatile in the short term as Covid-19 cases fluctuate. In February, the company said there’s uncertainty regarding the timing and pace of the recovery.
However, I believe if I’m patient, I’ll be rewarded here. It’s worth noting that Barclays just raised its target price to 1,875p from 1,750p. That’s about 33% higher than the current share price.
Edward Sheldon owns shares in Diageo and Starbucks. The Motley Fool UK owns shares of and has recommended Starbucks. The Motley Fool UK has recommended Diageo and recommends the following options: short April 2021 $110 calls on Starbucks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.